The goal of South Korea’s reforms: reducing the valuation discount
31 MAR, 2026
By Vontobel
Gayle Chan, ESG Analyst, Vontobel
Governance Reforms to Eliminate the “Korea Discount”: South Korea’s governance reforms for the 2025–2026 period, which include mandatory cancellation of treasury shares and cumulative voting, aim to improve transparency, protect minority shareholders, and address the undervaluation of Korean equities.
Strengthening Minority Shareholder Rights: Measures such as the 3% cap on voting in the audit committee and the expansion of fiduciary duties are intended to give minority shareholders a stronger voice in corporate decisions, with the potential to enhance accountability and fairness.
Corporate Actions and Market Impact: Large business conglomerates like Samsung and SK Hynix are implementing revaluation plans, indicating progress toward reducing governance risks and unlocking intrinsic value in Korean markets.
How South Korea’s 2025–2026 Governance Reforms Strengthen Minority Shareholder Rights
Korean family-owned conglomerates — the chaebols — drove the country’s economic growth in recent decades through government-favored expansion and protectionism. However, their opaque cross-shareholdings, low dividend payouts, weak corporate governance, and prioritization of controlling families over minority shareholders have resulted in the persistent “Korea discount.” As shown in Charts 1 and 2, Korean stocks have traded at lower price-to-book ratios than their emerging-market peers, despite strong fundamentals.
In response, South Korea launched the “Value-Up” Program in February 2024, inspired by previous reforms in Japan that encouraged companies to address chronic undervaluation through governance and capital management measures. Similarly, the Korean initiative aims to boost corporate market valuations by promoting capital efficiency, shareholder returns, and governance improvements through voluntary revaluation plans led by publicly listed companies.
The announcement of the Value-Up Program initially sparked investor enthusiasm, briefly lifting undervalued sectors. However, gains quickly reversed amid doubts about the voluntary framework’s applicability and sustainability. Conglomerates expressed concerns about potential erosion of family control and resisted drafting concrete plans. In response, South Korea enacted significant mandatory corporate governance reforms through amendments to the Korean Commercial Code. These mandatory reforms complement the revaluation initiative by redistributing influence from controlling shareholders toward all shareholders, particularly minorities.
This article explains how each mechanism works and why it represents a significant step toward fairer and more transparent markets.
1. Mandatory Cancellation of Treasury Shares
Treasury shares have long been a flexible tool in Korea that majority shareholders used to cement control, often at the expense of minority investors. Companies could repurchase shares and hold them as treasury stock, then sell them at discounted prices to affiliated companies, which could use them as voting blocks to support the majority shareholder.
The latest revision to the Commercial Code closes a key legal loophole by requiring that newly repurchased shares added to treasury stock be canceled within one year, with very limited exceptions. The new rule treats repurchases as permanent capital returns, similar to a capital reduction, improving earnings per share and book value per share. Once canceled, these shares cannot be reissued to the same group of allies to reinforce control.
As a result, future capital allocation decisions—whether returning cash to shareholders or investing in projects that improve the core business—will be more transparent.
2. Cumulative Voting
Large publicly listed companies (with total assets exceeding KRW 2 trillion [$1.3 billion]) must now allow cumulative voting in board elections. Cumulative voting lets shareholders concentrate their votes on a single candidate or distribute them among several candidates.
This enables minority shareholders to focus their votes on a particular (potentially minority) candidate to gain board representation, even if the majority shareholder still holds most shares. For example, a shareholder with a 5% stake voting for four board seats effectively has votes equivalent to 20% of one seat, which can be used to back a single candidate.
This reform supports better corporate governance by improving minority shareholder representation and may foster greater interaction between majority and minority shareholders.
3. 3% Cap for the Audit Committee
Alongside cumulative voting, a 3% cap on voting rights applies to the majority shareholder (and affiliates) when electing audit committee members in large listed companies. Majority shareholders may use only up to 3% of total outstanding voting shares to vote for a single audit committee candidate, regardless of their actual stake.
The audit committee oversees financial reporting, internal accounting systems, and the selection of external auditors, making it critical for minority shareholder trust, accountability, and transparency. The cap gives minority shareholders more influence in electing independent candidates, strengthening oversight of investment decisions and related-party transactions, thereby reducing value-draining projects and fund diversion. Together with cumulative voting, this significantly shifts power dynamics in this key supervisory body.
4. Expansion of Fiduciary Duties to All Shareholders
Companies must extend fiduciary duties to all shareholders, rather than focusing solely on the interests of the company. This change must be accompanied by procedural safeguards, decision-making protocols, and enhanced oversight, particularly in mergers, acquisitions, and restructurings.
5. Board Composition and Independence
The revision also renames “outside directors” (non-executive board members) as “independent directors” to enforce stricter impartiality standards. Previously, outside directors often lacked true autonomy due to ties with management or chaebol families.
Independent directors are now explicitly defined as those capable of exercising judgment free from influence by executives, inside directors, or majority shareholders, with disqualifiers including recent employment in a subsidiary or significant transactions with the company. Independent directors must now make up at least one-third of the board (up from one-quarter), fully effective by July 2027.
Current Status
Following the Commercial Code amendments, the Korean Revaluation Program has entered a rigorous implementation phase, combining voluntary corporate plans with binding legal obligations. As of early 2026, companies representing roughly 51% of Korea’s market capitalization have announced formal revaluation plans.
Major chaebols are taking concrete steps:
- Samsung Electronics plans to cancel 87 million treasury shares in the first half of fiscal 2026, ensure board committees comprise only independent directors, and announce detailed revaluation measures.
- SK Hynix (controlled by SK Inc.) will cancel 15.3 million treasury shares (≈2% of outstanding shares) this year.
- Hanwha Corp. and LG Corp. have committed to canceling 5.9% and 100% of their remaining treasury shares, respectively, by the end of fiscal 2026.
Outlook
These reforms have real potential to increase corporate value and strengthen minority investor protection, moving from theory to practical application. Korean companies, including those in which we invest, are updating their corporate bylaws at 2026 general meetings to comply with new board and audit committee requirements, demonstrating proactive adaptation to the strengthened governance framework.
Over time, the synergy between voluntary initiatives and legal mandates should mitigate governance risks driving the “Korea discount”, allowing fundamentally strong companies to trade closer to intrinsic value.
As South Korea follows Japan’s reform successes, the Value-Up Program could also serve as a model for emerging economies seeking to strengthen corporate governance. While markets such as China, Taiwan, Thailand, India, and other ASEAN countries have launched their own reform agendas, these efforts are often more limited in scope. By showing how greater board accountability, transparency, and minority shareholder protection can unlock market value, Korean regulators offer a replicable model to enhance investor confidence and improve valuations.
